[Federal Register Volume 65, Number 242 (Friday, December 15, 2000)]
[Rules and Regulations]
[Pages 78403-78405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32007]



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  Federal Register / Vol. 65, No. 242 / Friday, December 15, 2000 / 
Rules and Regulations  

[[Page 78403]]



OFFICE OF MANAGEMENT AND BUDGET

5 CFR Part 1315


Prompt Payment

AGENCY: Office of Management and Budget, Executive Office of the 
President.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Office of Management and Budget (OMB) is issuing an 
interim final revision to its rules on the Prompt Payment Act (PPA) to 
implement Section 1010 of the National Defense Authorization Act for 
Fiscal Year 2001. Section 1010 requires agencies to pay an interest 
penalty whenever they make an interim payment under a cost-
reimbursement contract for services more than 30 days after the agency 
receives a proper invoice for payment from the contractor.

DATES: Effective Date: This interim final rule is effective December 
15, 2000.
    Applicability Dates: This interim final rule shall apply to all 
interim payment requests received under cost-reimbursement service 
contracts awarded on or after December 15, 2000. At the discretion of 
the agency, this interim final rule may be applied to interim payment 
requests received under cost-reimbursement service contracts awarded 
before December 15, 2000. However, no interest penalty shall accrue 
under this rule for any delay in payment that occurs prior to December 
15, 2000.
    Comment Date: Comments must be received by February 13, 2001 and 
should be directed to the Department of the Treasury at the address 
identified below.

ADDRESSES: All comments should be addressed to Cynthia L. Johnson, 
Director, Cash Management Policy and Planning Division, Financial 
Management Service, U.S. Department of the Treasury, Room 420, 401 14th 
Street SW., Washington, DC 20227.
    Copies of the current PPA regulation and other information are 
available from the Prompt Payment web site at http://www.fms.treas.gov/prompt/index.html.

FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial 
Program Specialist, on (202) 874-7106; Matthew Helfrich, Financial 
Program Specialist, on (202) 874-6749; Martha Thomas-Mitchell, 
Financial Program Specialist, on (202) 874-6757; or Cynthia L. Johnson, 
Director, Cash Management Policy and Planning Division, on (202) 874-
6590.

SUPPLEMENTARY INFORMATION:

I. Background

    Contractors who are awarded cost-reimbursement contracts are 
generally authorized to seek reimbursement, including reimbursement 
during the course of the contract (``interim payments''), for the 
allowable costs they incur in the performance of the contract. In the 
National Defense Authorization Act for Fiscal Year 2001, Public Law 
106-398, 114 Stat. 1654, Congress imposed a new statutory requirement 
on agencies to pay an interest penalty on interim payments that are 
made late under cost-reimbursement service contracts. This requirement 
is contained in Section 1010 of the Act--``Interest Penalties for Late 
Payment of Interim Payments Due Under Government Service Contracts.''
    Specifically, under Section 1010(a), ``an agency acquiring services 
from a business concern under a cost-reimbursement contract requiring 
interim payments who does not pay the concern a required interim 
payment by the date that is 30 days after the date of the receipt of a 
proper invoice shall pay an interest penalty to the concern on the 
amount of the payment due.'' In addition, ``[t]he interest shall be 
computed as provided in section 3902(a) of title 31, United States 
Code,'' which is the interest provision of the Prompt Payment Act (PPA, 
31 U.S.C. 3901, et seq.), and the agencies are to carry out the 
requirement ``[u]nder regulations prescribed'' by OMB. In turn, Section 
1010(b) directs OMB to ``prescribe regulations to carry out this 
section,'' which ``shall be prescribed as part of'' OMB's regulations 
implementing the PPA. OMB's PPA regulations are now found at 5 CFR Part 
1315 (prior to their 1999 codification, they were contained in OMB 
Circular A-125). See 64 FR 52580 (September 29, 1999). Section 1010(c) 
states that ``[t]he provisions of chapter 39 of title 31, United States 
Code [i.e., the PPA], shall apply to this section in the same manner as 
if this section were enacted as part of such chapter.''
    Finally, Section 1010(d) states that ``Subsection (a) shall take 
effect on December 15, 2000. No interest shall accrue by reason of that 
subsection for any period before that date.''
    This rule implements Section 1010 by making conforming revisions, 
on an interim final basis, to OMB's PPA regulations. In developing this 
rule, OMB has consulted with the Departments of Defense and Treasury, 
the General Services Administration, and other agencies. OMB requests 
comment on the interim final revisions, and will consider them in our 
development of the final rule.

Agency Practices and Policies Regarding Interim Payments

    Until now, interim payments under cost-reimbursement service 
contracts have not been subject to PPA interest penalties. As a result 
of Section 1010, interim payments on cost-reimbursement service 
contracts will be subject to PPA interest penalties when the payment is 
not made ``by the date that is 30 days after the date of the receipt of 
a proper invoice.'' However, neither Section 1010 nor this interim 
final rule is intended to modify current agency practices or policies 
regarding dates for payment for interim payments on cost-reimbursement 
service contracts, other than to require--in accordance with Section 
1010(a)--that PPA interest penalties be paid on interim payments that 
are made more than 30 days after the agency receives a proper invoice. 
In particular, Section 1010 leaves unaffected existing agency policies 
that call for these interim payments to be made well in advance of 30 
days. For example, it is the policy of the Department of Defense to 
generally pay contractors 14 days or less after being billed for 
reimbursements on cost-reimbursement contracts. See Subpart 232.906 of 
the Department of Defense Supplement to the Federal Acquisition 
Regulation (DFARS), 48 CFR Chapter 2.

[[Page 78404]]

Implementation

    Newly added Section 1315.20 of the PPA regulation makes clear that 
the requirements of Section 1010 are to be implemented on an 
accelerated basis. Section 1315.20 requires agencies to immediately 
apply the revisions made by this interim final rule to all interim 
payment requests received under cost-reimbursement service contracts 
awarded on or after December 15, 2000. This accelerated implementation 
schedule is intended to reinforce agency efforts to pay their bills in 
a timely manner. Prompt payment facilitates the government's ability to 
attract high quality contractors, and can reduce contractors' costs of 
doing business with the government, which can translate into lower 
prices for the products and services agencies acquire to meet their 
mission needs. For this reason, the rule also authorizes agencies, at 
their discretion, to apply the revisions to interim payment requests 
received under cost-reimbursement service contracts awarded prior to 
December 15, 2000. Agencies are authorized to issue modifications to 
contracts, as necessary, to conform them to the revisions made by this 
interim final rule. However, as required by Section 1010(d), no 
interest penalty shall accrue under this rule for any delay in payment 
that occurs prior to December 15, 2000.
    Mandatory application of the revised rule to contracts awarded on 
or after the rule's effective date is consistent with implementation 
approaches previously taken by OMB in implementing PPA requirements. 
When OMB originally implemented the PPA in 1982, and when OMB in 1989 
implemented the Act's 1988 amendments, new requirements generally 
applied to contracts that would be executed on or after the statutory 
effective date. See August 25, 1982 implementation of PPA, at 47 FR 
37321, 37322 (preamble discussion) and 37324 (Circular A-125, Section 
13--``Interest penalties will apply to payments made under contracts 
issued on or after October 1, 1982.''); December 21, 1989 
implementation of 1988 amendments, at 54 FR 52700, 52713 (Circular A-
125, Section 15--generally applying new requirements to ``payments 
under contracts awarded, contracts renewed, and contract options 
exercised on or after'' the statutory effective date). OMB believes 
this same implementation approach is suitable for Section 1010 and will 
best ensure that the requirements of Section 1010--which was recently 
enacted on October 30, 2000--are applied by agencies in an orderly and 
effective manner.

II. Regulatory Flexibility Act, Unfunded Mandates Reform Act, 
Congressional Review Act, and Executive Orders 12866 and 12875

    This interim final rule will not have a significant economic effect 
on a substantial number of small entities; the regulations implement 
Section 1010 of the National Defense Authorization Act for Fiscal Year 
2001, which requires Federal agencies to pay an interest penalty 
whenever they make interim payments on cost-reimbursement service 
contracts more than 30 days after they receive a proper invoice. For 
purposes of the Unfunded Mandates Reform Act of 1995 (Public Law 104-
4), as well as Executive Orders 12866 and 12875, the interim final rule 
will not significantly or uniquely affect small governments, and will 
not result in increased expenditures by State, local, and tribal 
governments, or by the private sector, of $100 million or more. 
Finally, the interim final rule is not a ``major rule'' under 5 U.S.C. 
Chapter 8; the rule will not have any of the effects set forth in 5 
U.S.C. 804(2).

III. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply to this interim final 
rule because the rule's changes do not impose new recordkeeping 
requirements or collections of information from offerors, contractors, 
or members of the public that require approval under 44 U.S.C. 3501, et 
seq. The information a contractor must submit in order to receive an 
interim payment under a cost-reimbursement service contract is 
addressed at Section 1315.9(b)(2) of the revised PPA regulations. 
Section 1315.9(b)(2) states that an interim payment request must 
correctly include all the information required by the contract or by 
agency procedures.

IV. Determination To Issue an Interim Final Rule

    This rule is being promulgated as an interim final rule in order to 
carry out Section 1010(a) of Public Law 106-398 on a timely basis. 
Section 1010(a) requires an agency, under regulations prescribed by the 
Director of OMB, to pay an interest penalty whenever the agency makes 
an interim payment under a cost-reimbursement contract for services 
that is more than 30 days after the agency receives a proper invoice 
for payment from the contractor. Section 1010(a) was enacted into law 
on October 30, 2000, when the President signed into law Public Law 106-
398, the National Defense Authorization Act for Fiscal Year 2001. 
Section 1010(d) states that Section 1010(a) ``shall take effect on 
December 15, 2000,'' and Section 1010(b) directs OMB to ``prescribe 
regulations to carry out'' Section 1010. There is ``good cause'' under 
5 U.S.C. 553(b) for OMB to issue this rule without prior public 
comment, because the issuance of a proposed rule to implement Section 
1010(a) would have been ``impracticable'' due to the very short (45-
day) period between the enactment and effective dates for Section 
1010(a). Although this rule is being issued without prior opportunity 
for public comment, OMB is requesting comments on the interim final 
rule and will consider all comments received in our development of the 
final rule.

List of Subjects in 5 CFR Part 1315

    Administrative practice and procedure, Government contracts, 
Penalties, Reporting and recordkeeping requirements.

    Dated: December 12, 2000.
Sylvia M. Mathews,
Deputy Director.

    For reasons set out in the preamble, 5 CFR chapter III, part 1315 
is amended as set forth below:

Authority and Issuance

PART 1315--PROMPT PAYMENT

    1. The authority citation for part 1315 is revised to read as 
follows:


    Authority: 31 U.S.C. chapter 39; Section 1010 of Public Law 106-
398, 114 Stat. 1654.


    2. Section 1315.2 is amended by revising paragraph (h) to read as 
follows:


Sec. 1315.2  Definitions.

* * * * *
    (h) Contract financing payments means an authorized disbursement of 
monies prior to acceptance of goods or services including advance 
payments, progress payments based on cost, progress payments (other 
than under construction contracts) based on a percentage or stage of 
completion, payments on performance-based contracts and interim 
payments on cost-type contracts (other than under cost-reimbursement 
contracts for the acquisition of services). Contract financing payments 
do not include invoice payments, payments for partial deliveries, or 
lease and rental payments. Contract financing payments also do not 
include progress payments under construction contracts based on a 
percentage or stage of completion and interim payments under cost-
reimbursement service contracts. For purposes of this part, interim 
payments

[[Page 78405]]

under a cost-reimbursement service contract are treated as invoice 
payments and subject to the requirements of this part, except as 
otherwise provided (see, e.g., Secs. 1315.4(d) and (e), and 
1315.9(b)(1) and (c)).
* * * * *

    3. Section 1315.4 is amended by revising paragraphs (d) and (e), 
revising paragraph (g)(1), redesignating paragraphs (g)(2) through 
(g)(4) as paragraphs (g)(3) through (g)(5), respectively, and adding a 
new paragraph (g)(2) to read as follows:


Sec. 1315.4  Prompt payment standards and required notices to vendors.

* * * * *
    (d) Receipt of goods and services. Agencies will ensure that 
receipt is properly recorded at the time of delivery of goods or 
completion of services. This requirement does not apply to interim 
payments on cost-reimbursement service contracts except as otherwise 
required by agency regulations.
    (e) Acceptance. Agencies will ensure that acceptance is executed as 
promptly as possible. Commercial items and services should not be 
subject to extended acceptance periods. Acceptance reports will be 
forwarded to the designated agency office by the fifth working day 
after acceptance. Unless other arrangements are made, acceptance 
reports will be stamped or otherwise annotated with the receipt date in 
the designated agency office. This requirement does not apply to 
interim payments on cost-reimbursement service contracts except as 
otherwise required by agency regulations.
* * * * *
    (g) Determining the payment due date. (1) Except as provided in 
paragraphs (g)(2) through (5) of this section, the payment is due 
either:
    (i) On the date(s) specified in the contract;
    (ii) In accordance with discount terms when discounts are offered 
and taken (see Sec. 1315.7);
    (iii) In accordance with Accelerated Payment Methods (see 
Sec. 1315.5); or
    (iv) 30 days after the start of the payment period as specified in 
paragraph (f) of this section, if not specified in the contract, if 
discounts are not taken, and if accelerated payment methods are not 
used.
    (2) Interim payments under cost-reimbursement contracts for 
services. The payment due date for interim payments under cost-
reimbursement service contracts shall be 30 days after the date of 
receipt of a proper invoice.
* * * * *

    4. Section 1315.5 is amended by adding a new paragraph (d) to read 
as follows:


Sec. 1315.5  Accelerated payment methods.

* * * * *
    (d) Interim payments under cost-reimbursement contracts for 
services. For interim payments under cost-reimbursement service 
contracts, agency heads may make payments earlier than seven days prior 
to the payment due date in accordance with agency regulations or 
policies.

    5. Section 1315.9 is amended by redesignating paragraphs (b) 
introductory text and (b)(1) through (b)(10) as paragraphs (b)(1) 
introductory text and (b)(1)(i) through (b)(1)(x), respectively, 
revising newly redesignated paragraph (b)(1) introductory text, adding 
a new paragraph (b)(2), and revising the introductory text of paragraph 
(c) to read as follows:


Sec. 1315.9  Required documentation.

* * * * *
    (b)(1) Except for interim payment requests under cost-reimbursement 
service contracts, which are covered by paragraph (b)(2) of this 
section, the following correct information constitutes a proper invoice 
and is required as payment documentation:
* * * * *
    (2) An interim payment request under a cost-reimbursement service 
contract constitutes a proper invoice for purposes of this part if it 
correctly includes all the information required by the contract or by 
agency procedures.
    (c) Except for interim payment requests under cost-reimbursement 
service contracts, the following information from receiving reports, 
delivery tickets, and evaluated receipts is required as payment 
documentation:
* * * * *

    6. Section 1315.10 is amended by revising paragraph (b)(1) to read 
as follows:


Sec. 1315.10  Late payment interest penalties.

* * * * *
    (b) * * *
    (1) Interest may be paid only after acceptance has occurred; when 
title passes to the government in a fast payment contract when title 
passing to the government constitutes acceptance for purposes of 
determining when interest may be paid; or when the payment is an 
interim payment under a cost-reimbursement service contract;
* * * * *

    7. Add Sec. 1315.20 to read as follows:


Sec. 1315.20  Application of Section 1010 of the National Defense 
Authorization Act for Fiscal Year 2001.

    Section 1010 of the National Defense Authorization Act for Fiscal 
Year 2001 (Public Law 106-398, 114 Stat. 1654) requires an agency to 
pay an interest penalty whenever the agency makes an interim payment 
under a cost-reimbursement contract for services more than 30 days 
after the date the agency receives a proper invoice for payment from 
the contractor. This part implements Section 1010 and is applicable in 
the following manner:
    (a) This part shall apply to all interim payment requests received 
under cost-reimbursement service contracts awarded on or after December 
15, 2000.
    (b) This part may be applied, at the discretion of the agency, to 
interim payment requests received under cost-reimbursement service 
contracts awarded before December 15, 2000. However, no interest 
penalty shall accrue under this part for any delay in payment that 
occurs prior to December 15, 2000.
    (c) Agencies are authorized to issue modifications to contracts, as 
necessary, to conform them to the provisions in this part implementing 
Section 1010.

[FR Doc. 00-32007 Filed 12-14-00; 8:45 am]
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